Standard Chartered Plc., the UK-based bank operating in India, said it acquired a 49% stake in UTI Securities Ltd—a domestic brokerage firm—from Securities Trading Corp. of India Ltd (STCI) in an all-cash deal worth Rs147 crore to expand its presence in India.
The bank also said that both parties have provided for “necessary options” to raise Standard Chartered’s stake in UTI Securities in stages for a complete buyout by 2010, subject to necessary regulatory approvals. Under the law, there can be up to 100% foreign direct investment in a privately held company.
Standard Chartered has been eyeing a stake in a domestic brokerage firm for the last six months or so. The stake in UTI Securities will enable it to broaden its product offerings in wealth management and private banking within India, and to the non-resident Indians (NRIs) in other countries.
“This investment is ground-breaking for the group as it signals entry into securities broking and I am glad it commences with India,” Jaspal Bindra, director, Standard Chartered, said. “I see great potential for this business through this strategic partnership,”
UTI Securities, which was set up in 1994 as an institutional brokerage agency, has grown into a financial intermediary having nationwide presence in 60 cities, with 41 branches and 174 franchises. The company is engaged in institutional and retail broking, online trading, depository services, portfolio management, equities research, investment banking, fixed income securities and distribution of third-party financial products such as insurance and mutual funds.
“Of late, especially foreign banks are showing an increased interest in acquiring stakes in local brokerage firms, as they are trying to increase their footprint in India,” said Sonali Sinha, associate director (transaction advisory) at audit firm Ernst & Young India Pvt. Ltd.
The deal was finalized in about six months and there were other prominent foreign suitors Standard Chartered had to reckon with. Banking industry players concede that this is how foreign banks are preparing for 2009, when the Reserve Bank of India will revisit the issue of the operational scope of foreign banks in the country.
The UTI Securities deal is the fourth of its kind in 2007. As recently as 14 August, US-based investment bank Lehman Brothers Inc. announced that it had acquired the institutional broking business of domestic brokerage firm Brics Securities for an undisclosed amount.
Lehman Brothers’ acquisition of Brics Securities’ institutional broking team is primarily aimed at getting a ready-made platform of 40 sales, trading and research professionals.
Nimesh Kampani-led JM Financials Ltd made around Rs2,000 crore by selling off its institutional broking business to its 17-year-old partner, Morgan Stanley. JM Financials paid an additional Rs58 crore, after that deal, for a controlling stake in ASK Securities, a local institutional broking house promoted by Asit Kotecha.